Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354

FEDERAL COURT OF AUSTRALIA

Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354 File number: SAD 99 of 2016

Judge: WHITE J

Date of judgment: 15 March 2019

Catchwords: CORPORATIONS – directors' duties – Defendants were directors and/or officers of a mining company (Termite) operating a mine with a life of about five years – Termite conducted the mining and associated activities through contractors pursuant to contracts for terms closely corresponding to the estimated life of the mine – Defendants caused Termite to adopt and implement a distributions policy by which, subject to the retention of a reserve of $3 million, all the proceeds from the mining were distributed to the joint venturer shareholders – part way through the expected life of the mine, the iron ore price dropped and Termite went into voluntary administration and subsequently into liquidation - claim that several of the Defendants breached their common law duties to act with care, skill, diligence and good faith for the company as a whole – claim that the Defendants breached ss 180 and 181 of the Corporations Act 2001 (Cth) – claim that the reserve of $3 million was inadequate – claim that a reserve of at least $10 million was necessary for Termite to survive even a short term downturn in the iron ore price. CORPORATIONS – claim for damages pursuant to s 1317H of the Corporations Act or at common law for the deficiency in Termite's liquidation – in the alternative, claim that the distributions would not have been made and that Termite would have repaid its creditors and reduced a loan from its parent company – in the further alternative, claim for the aggregate of the distributions paid pursuant to the Distributions Policy. Held: 1. A cash reserve of at least $10 million should have been retained – each of the Defendants, acting as either directors or de facto directors, breached their duties under ss 180 and 181 in respect of the adoption and implementation of the distributions policy and in failing to review and revise it during the period that distributions were made – three of the defendants breached their common law duties. 2. An additional $7 million would have been available in mid-2014 when the administration occurred if a $10 million cash reserve had been retained – damages of $7 million awarded. CORPORATIONS – consideration of claim for damages and review of deficiency in the liquidation – liquidators have admitted proofs of debt – whether the amount for which a debt has been admitted to proof by the liquidators was a cap on the Defendants' liability – assessment of creditors' claims.